The breaking news on Reddit today is an article by Ken Hess, “reporter” for ZDNet. The Reddit community seems to be in panic mode about Hess’s report that the United States Senate is poised to make Bitcoin illegal. A casual inspection of his report however makes his claims highly unlikely, at best.
Hess’s problem with Bitcoin seems to be that it is being used as a form of currency and that, under “Article 1, Section 8, Clause 5 of the Constitution of the United States, only the US Treasury can coin currency.”
The problem is that while Hess is usually a competent tech writer, and he is completely correct in the above claim, it is apparent that he has little understanding of either finance or law, and his biography on ZDNet demonstrates no history in dealing with either subject.
Hess printed a response that he received from US Senator Tom Coburn (R-Oklahoma). Before the text of Senator Coburn’s response, Hess implies that the Senator agrees that Bitcoin should be made illegal because of the above mentioned Constitutional clause.
Upon reading the Senator’s response, we can see that this is not even close to the truth. Senator Coburn agrees that Bitcoin and other cryptocurrencies have been used in illegal activities, and that this does present a concern for legislators. But then the Senator explains that the Internal Revenue Service (IRS) has already ruled that Bitcoin is to be taxed as capital gains.
Coburn goes on to say that the legal status of Bitcoin as a currency cannot be made until the definition of currency is analyzed. Currently, the Senator continued:
“If federal government does not disperse or remit cryptocurrencies, they are simply not legal currency.”
Senator Coburn explained clearly to Hess that if the federal government were to “appropriate” Bitcoin, or if the IRS were to accept Bitcoin as a tax payment, the requirements of the Constitution would be fulfilled. At no point in the Senator’s response to Hess did he indicated a desire to introduce legislation that would effectively make Bitcoin illegal. The IRS has already ruled on the status of virtual currencies in IR-2014-36, published on March 25, 2014. The ruling said, in part:
“The notice provides that virtual currency is treated as property for US federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency.”
Under current IRS regulations, the IRS itself also accepts “property” for the payment of taxes under the levy system. If a person does not pay their taxes, property of equal value is seized. They can levy property such as wages, salary and bank accounts.
The above regulations seem to fulfill Senator Coburn’s requirements for Bitcoin being considered a “currency” under the US Constitution. This does not mean, however, that Congress has determined that Bitcoin is a currency. It simply means that Ken Hess’s claims are completely baseless.
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Hess’s problem with Bitcoin seems to be that it is being used as a form of currency and that, under “Article 1, […]